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Business loans for construction companies and contractors

Compare financing designed for the construction industry.

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<p>Lenders consider construction a high-risk industry, which can make it tricky for you to get the financing you need for the materials and labor to complete your work. You might have trouble getting a prime-rate term loan from a bank. But you’ll find funding options available to construction companies that can help your business grow.</p>
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<h3 class=”is-style-heading-sideline” id=”x-best-lenders-for-contractors-and-construction-businesses”>Best construction business loans</h3>
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<p>The best type of business loan depends on what your business needs to finance and what it can qualify for. These five types of financing are typically available to the construction industry and types fill common needs. </p>
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<p>We also added our choice for the best provider of that type of loan, based on rates, terms and loan amounts available. And we also made sure that construction businesses were eligible.</p>
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<li><a href=”#sba” target=”” rel=”noopener” data-no-link-check=”true”>SBA loans</a></li>
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<li><a href=”#equipment” target=”” rel=”noopener” data-no-link-check=”true”>Equipment financing</a></li>
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<li><a href=”#loc” target=”” rel=”noopener” data-no-link-check=”true”>Line of credit</a></li>
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<li><a href=”#invoice” target=”” rel=”noopener” data-no-link-check=”true”>Invoice financing</a></li>
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<li><a href=”#short-term” target=”” rel=”noopener” data-no-link-check=”true”>Short-term business loans</a></li>
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<h3 id=”sba”>SBA loans</h3>
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<p>The Small Business Administration (SBA) offers <a href=”https://www.finder.com/sba-loans” target=”” rel=”noopener” data-no-link-check=”true”>government-backed financing</a> to businesses that have struggled to qualify for a bank loan. Since construction is considered a risky industry, SBA loans might offer the lowest rates you’re able to qualify for. </p>
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<p>The SBA 7(a) program offers general-use term loans that can be particularly useful for buying equipment, building a new office, consolidating high-interest debt or buying out a competitor. You can also use them to <a href=”https://www.finder.com/business-loans/business-acquisition-loan” target=”” rel=”noopener” data-no-link-check=”true”>buy an existing construction business</a>. It also offers government-backed lines of credit with special programs for filling contracts, building or renovating real estate and seasonal businesses. </p>
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<p>But save SBA loans for large, future projects. The application is time-consuming and it can take months to receive your funds. You also generally need to good credit and at least three years in business to qualify.</p>
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<h3 id=”equipment”>Equipment financing</h3>
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<p>Equipment financing includes loans and leases to <a href=”https://www.finder.com/business-loans/equipment-financing” rel=”noopener” data-no-link-check=”true” target=””>buy the equipment your business needs</a> to complete a construction project. You can typically borrow between 80% and 100% of the equipment’s value — though some companies offer as much as 400%. Typically, terms are based on how long the lender thinks the equipment will be useful.</p>
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<p>Because collateral is built into the loan, this is one of the easiest type of financing to qualify for, even as a new business or with bad credit. The collateral also makes it easier to qualify for a low rate compared to other types of financing.</p>
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<h3 id=”loc”>Lines of credit</h3>
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<p>A line of credit offers your company <a href=”https://www.finder.com/business-loans/business-line-of-credit” target=”” rel=”noopener” data-no-link-check=”true”>access to cash as needed</a> to cover a long-term project. These are best for working capital expenses when you’re filling a contract, after you’ve bought your equipment and the basic supplies you know you’ll need. </p>
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<p>SBA CAPlines are a great option for large projects. But if you can’t qualify for an SBA loan, consider an online lender. They’re more likely to work with construction businesses than a bank and often accept fair or bad credit. They’re also typically faster and easier to manage than a bank credit line.</p>
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<h3 id=”invoice”>Invoice financing</h3>
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<p>Invoice financing gives you an advance on your client’s unpaid invoices when you need funds to complete the job. Typically you can receive up to 85% to 100% of your invoice’s value upfront. And when your clients pay their invoices, you pay off your advance. Usually invoice financing charge a monthly rate of around 3% to 5% of the advance.</p>
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<p>One benefit of invoice financing is that eligibility is often based on your client’s credit — not yours. You also don’t typically need to be in business for a specific amount of time.</p>
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<h3 id=”short-term”>Short-term business loans</h3>
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<p>Short-term business loans <a href=”https://www.finder.com/business-loans” target=”” rel=”noopener” data-no-link-check=”true”>give you a lump sum that you pay</a> plus installments over six to 18 months. They’re often available to high-risk industries like construction. They’re also usually friendly to newly established businesses and bad credit borrowers. And you can get funded within a few days.</p>
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<p>But unlike other term loans, short-term loans often come with daily or weekly payments, which can be inflexible. They also tend to be one of the more expensive options. In some cases, lenders charge rates and fees equivalent to an APR over 300%.</p>
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<h3 class=”is-style-heading-sideline” id=”how-to-decide-which-loan-offer-is-best-for-my-business”>How to decide which loan offer is best for my business</h3>
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<p>Finding the right loan offer starts with narrowing down the right type of financing.</p>
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<li>If you’re in need of heavy machinery, an equipment loan might be the right option.</li>
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<li>Struggling with cash flow? A line of credit or factoring could be a better bet.</li>
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<li>Need funding specifically to finish a project? An SBA Contract CAPLine is an option.</li>
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<p>Also consider your priorities. If you need money now, a short-term loan or line of credit could your fastest choices. A Contract CAPLine can help you save on interest and fees if you have time to dedicate to the long application process.</p>
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<p>Costs, loan amounts and limitations on how you can use your funds are all factors you might also want to consider. Finding a loan you’re eligible for can be tough for contractors because lenders consider construction to be a risky business. Before seriously considering a loan, make sure your business is eligible for it.</p>
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<h3 class=”is-style-heading-sideline” id=”what-common-business-expenses-can-i-cover-with-financing?”>What common business expenses can I cover with financing?</h3>
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<p>From training crew to investing in marketing, a business loan can help you pay for a variety of expenses:</p>
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<li><strong>Equipment.&nbsp;</strong>An equipment or term loan can help your business buy the machines you need or rent project-specific tools.</li>
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<li><strong>Payroll.&nbsp;</strong>Each project can come with a new foreman, engineer, scheduler and super — all with their own carefully negotiated salaries. A term loan or line of credit can help you cover these costs.</li>
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<li><strong>Temporary office space.</strong>&nbsp;A loan or lease can help pay for a trailer or other accommodations for supervisors, architects and more.</li>
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<li><strong>Temporary utilities.</strong>&nbsp;Portable toilets, drinking fountains, lighting and other utilities needed at construction sites can vary from project to project, and your business might not have the money to cover them up front.</li>
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<li><strong>Training</strong>. Working with the same crew on different projects can result in a smoothly run project. A loan can help you invest in cross-training for employees to ensure they have the skills needed for each job.</li>
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<li><strong>Marketing and advertising.</strong>&nbsp;Investing in a smart ad campaign can bring in new clients and more than pay for itself. A loan could help you afford the upfront costs.</li>
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<h3 class=”is-style-heading-sideline” id=”what-will-i-need-to-apply?”>What will I need to apply?</h3>
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<p>The documents and information you need to apply can vary widely depending on the loan, the lender and your business’s finances.</p>
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<p>SBA loans are notorious for their laundry list of required information, including documentation of any run-ins with the law. Others are a lot less involved, asking for:</p>
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<li><strong>Accounts receivable aging report.</strong>&nbsp;Factoring companies and select business lenders will ask to see your business’s unpaid invoices from companies or government agencies and when they’re due.</li>
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<li><strong>Business bank statements.</strong>&nbsp;Lenders want an idea of your business’s general cash flow — often three months’ worth.</li>
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<li><strong>Tax returns.</strong>&nbsp;You’ll likely need to produce your recent business and personal tax returns.</li>
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<li><strong>Copies of current contracts.</strong>&nbsp;It’s not always required, but current contracts can give lenders an idea of how much your business expects to bring in and when.</li>
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<h3 class=”is-style-heading-sideline” id=”what-challenges-might-i-face-as-a-contractor-applying-for-a-loan?”>What challenges might I face as a contractor applying for a loan?</h3>
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<p>Construction isn’t like any other businesses. <em>Contract</em> is in its name, making it hard to predict future revenue — or whether your business will be around before your loan term is up. That’s why some lenders aren’t as willing to work with contractors as they are with businesses in more stable industries.</p>
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<p>Not all lenders list the industries they’re willing to work with, so contact customer service first to make sure your company is eligible. You might also consider backing your loan with collateral or a lien on your business or personal assets to offset some of the risk.</p>
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<p>Businesses that aren’t yet a year old will face a tougher process: Lenders prefer to work with companies that have experience. Bad personal credit can also hurt your application. In these cases, backing your loan with collateral could help, though you might only qualify for more expensive types of financing, like short-term loans or factoring.</p>
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<h3 class=”is-style-heading-sideline” id=”6-tips-for-running-a-sustainable-contracting-company”>6 tips for running a sustainable contracting company</h3>
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<p>Is your construction company just getting off the ground or looking for ways to grow? Here are a few pointers to help your business stay around for the long haul.</p>
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<li><strong>Find a mentor.</strong>&nbsp;Mentors aren’t just for rookies — many of us can learn from others with more experience. And while yours may not always be right, they could point you in new directions or provide insights you might not have thought of.</li>
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<li><strong>Make a budget.</strong>&nbsp;Unpredictable overhead can sink a contracting company. A budget might not prevent it, but a strong one can help you decide when and what to change about your business to make it more efficient.</li>
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<li><strong>Join an industry association.</strong>&nbsp;Organizations like the Associated General Contractors of America can connect you with other companies and help you learn about the resources you need to run a tighter business — like tips on what products to use and prices to charge.</li>
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<li><strong>Invest in marketing.</strong>&nbsp;When you depend on clients, marketing is key. It can help you find new customers and projects that make the most of your team’s skills.</li>
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<li><strong>Know when to outsource.</strong>&nbsp;Your business will likely run into situations where you’ve bitten off more than you can chew. Hiring outside help — like an accountant to handle your finances while you take care of something more urgent — can help you deliver your best on a contract.</li>
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<h3 class=”is-style-heading-sideline” id=”bottom-line”>Bottom line</h3>
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<p>Getting a loan is often harder for contractors than businesses in other industries. Equipment financing and SBA loans can be your least expensive options, though they might not be right for your specific needs.</p>
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<p>Learn about other types of financing designed for your industry in <a href=”https://www.finder.com/best-business-loans” target=”” rel=”noopener” data-no-link-check=”true”>our guide to business loans</a>.</p>
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<p style=”font-size:13px”><em>Image source: shutterstock.com</em></p>
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Written by

Anna Serio

Anna Serio was a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY. See full profile

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